ECB should not make a deal harder to reach

Even before Sunday’s referendum, Greece’s negotiations were in an advanced state of chaos. Its people overwhelmingly rejected an offer that had in any case expired. Prime minister Alexis Tsipras had urged a No vote, despite conceding most of the ground needed for the expiring deal. The crowds jamming Syntagma Square celebrated No as allowing austerity-free membership of the single currency. The more sullen interpretation from Greece’s creditors was it signalled a repudiation of Europe itself.

Had the Greek people voted differently, matters might now be clearer. Yet another result would only have brought a different variety of chaos. It may have forced Mr Tsipras off the stage, only to return within weeks at a new election, leaving exasperated creditors to strike a confused deal with the same band of recalcitrants.

As Greeks were thronging to their historic yet otiose plebiscite, the passage of time was threatening to settle matters. With deposits fleeing its banks, and funding from the European Central Bank capped, Greece’s government has been forced to impose capital controls, including a limit of just €60 per day on withdrawals.

Now this mess of clashing mandates and paradoxical demands threatens to ensnare the ECB. Its “emergency liquidity assistance” (ELA) is the fraying thread that still, just, binds Greece into the eurozone. For banks to reopen as promised, the ECB will need to lift its cap on ELA. But central banks are meant to lend only against high quality collateral, and without a new bailout the banking assets that underpin over €50bn of ELA are more like junk than sovereign debt.

But as ever in matters European there is room for interpretation. The ECB has a specific mandate to promote the smooth operation of payments systems, and a duty to promote the general economic policies of the EU. Both argue for it to keep shovelling funds towards Greek banks. In particular, untangling banks from their national sovereigns has been an EU policy goal ever since a fatal nexus of indebted states and shattered finance threatened the very existence of the single currency. Mario Draghi, ECB president, only ended that crisis in 2012 with his “whatever it takes” promise to stand behind sovereign debt.

Mr Draghi therefore has it within his power either to keep Greece on life support, or pull the plug. But it must not be his decision. Despite being embroiled in past bailouts — and hence a member of the loathed “troika” supposedly squeezing the Greek people — the credibility of the ECB remains essential to the eurozone. Governing a currency without the fiscal institutions to match, it has to rely on tools and instructions that are a work in progress. Were they complete, there would be jointly backed “eurobonds” to underpin Greek bank loans, and the ECB would not be in such an invidious position.

Mr Tsipras and Angela Merkel, the German chancellor, have agreed that Greece should put forward new proposals which, if agreed, might result in a third bailout package. The chances of success are slim, the odds having been lengthened by the referendum result which will have caused both sides to dig in their heels. Eurozone ministers, having lectured Greek voters about the risks of voting No, will want to avoid bowing to Syriza’s demands. But Mr Tsipras, under pressure from his hardliners and having charmed the Greek people with visions of an enhanced negotiating mandate, has staked too much to backtrack.

While there is even the slimmest chance of success, it should neither be the act nor the indecision of the ECB that finally drives Greece from the eurozone. Every day that passes, plummeting confidence and shuttered banks are propelling it into a downward spiral. If the Bank of Greece asks that the cap on ELA be lifted, Mr Draghi should urge the ECB governing council to agree and give the political negotiations the space to conclude. The financial risks are the same either way — eurozone governments already stand behind the ECB.

From first being allowed into the eurozone, through two bailouts to the cliff-edge posturing of Syriza this year, the decisions that have marked Greece’s sorry experience of the euro have been thoroughly political. If the saga now ends in Grexit it will be a political failure too. Mr Draghi’s role is to make that clear, and pass the buck to the politicians.